Importantly, resource utilization rates have been so low since late 2008 that a variety of simple rules have been calling for a federal funds rate substantially below zero, which of course is not possible. Consequently, the actual setting of the target funds rate has been persistently tighter than such rules would have recommended. The FOMC’s unconventional policy actions–including our large-scale asset purchase programs–have surely helped fill this “policy gap” but, in my judgment, have not entirely compensated for the zero-bound constraint on conventional policy. In effect, there has been a significant shortfall in the overall amount of monetary policy stimulus since early 2009 relative to the prescriptions of the simple rules that I’ve described {italics added}.

The “in my judgement” clause is important. Not only do the simply rules say more easing is needed, but she agrees with that position. Beckworth sees hope in this paragraph:

Finally, a prominent Fed official acknowledges what Market Monetarists have been saying for some time: over the past 3 years the Fed has failed to adequately ease monetary policy and thus has passively tightened.

Avent sees another opportunity to urge for additional stimulus:

One wants to scream, try overshooting for once. Try overshooting for once! Try it! Try pushing inflation up above 2% for a while and see if you can’t generate enough growth to soak up some slack in the economy, thereby greatly reducing the risk that any little headwind that comes along knocks the economy back below stall speed. Try it! There is no way that a year of 3% inflation is bad enough to justify this pitiful hiccuping recovery. Try overshooting!

I find myself just plain frustrated, especially if you read further. Yellen later says:

Risk-management considerations strengthen the case for maintaining a highly accommodative policy stance longer than might otherwise be considered appropriate. In particular, the FOMC has considerable latitude to withdraw policy accommodation if the economic recovery were to proceed much faster than expected or if inflation were to come in higher.

So far so good…plenty of room to keep the monetary spigots open. But it begs the question of why shouldn’t the Fed be doing more right now if Yellen thinks there remains a policy gap and risk-management considerations give the go-ahead for more policy? Then comes the pivot:

The current economic outlook is associated with significant risks in both directions.

Ugh. After arguing for more stimulus, Yellen follows up with the fair and balanced approach to economic forecasting:

In particular, we know that recoveries from financial crises are commonly prolonged, and I remain concerned that the headwinds that have been restraining the recovery could lead to a longer period of sluggish growth and high unemployment than is embodied in the consensus forecasts…Potential upside surprises to the outlook include the possibility that the recovery has greater underlying momentum than is incorporated in consensus forecasts.

She concludes with:

In summary, I expect the economic recovery to continue–indeed, to strengthen somewhat over time. Even so, over the next several years, I anticipate that we will fall far short in achieving our maximum employment objective, and I expect inflation to remain at or below the FOMC’s longer-run goal of 2 percent. A range of considerations, including those relating to uncertainty and asymmetric risks, must inform one’s judgment on the appropriate stance of policy. As I explained, a variety of analytical tools, including optimal control techniques and simple policy rules, can serve as useful benchmarks. Based on such analysis, I consider a highly accommodative policy stance to be appropriate in present circumstances. But considerable uncertainty surrounds the outlook, and I remain prepared to adjust my policy views in response to incoming information. In particular, further easing actions could be warranted if the recovery proceeds at a slower-than-expected pace, while a significant acceleration in the pace of recovery could call for an earlier beginning to the process of policy firming than the FOMC currently anticipates.

Yellen lays out the case for additional stimulus, making clear that the Fed is falling short in efforts to compensate for the zero bound, and then, almost inexplicably, concludes that the current policy stance is appropriate and should only be altered on the basis of incoming data. How this conclusion follows from her analysis of the situation is beyond me. After all, if you believe that the Fed is falling short of its mark, why don’t you explicitly call on the Fed to do more now? Why do we need to wait for evidence of slower-than-expected growth when you have already acknowledged general disappointment with the state of the economy as well as policy?

Say what you will about the likes of Minneapolis Federal Reserve President Narayana Kocherlakota. I might not agree with his view of the economy, but at least he is willing to push a policy position that is consistent with that view. From his most recent speech:

My own belief is that we will need to initiate our somewhat lengthy exit strategy sometime in the next six to nine months or so, and that conditions will warrant raising rates sometime in 2013 or, possibly, late 2012.

Kocherlakota sees tightening sooner than later as the natural extension of his economic forecast, and he says so. The natural extension of Yellen’s view is to push for additional easing now, but she just can’t bring herself to say it. What is holding her back? My guess: Yellen might want to ease further, but knows Federal Reserve Chairman Ben Bernanke won’t push for it, and thus she doesn’t want to send an erroneous signal about the direction of monetary policy.

Bottom Line: I admit that I am a little frustrated with the doves among Federal Reserve policymakers, as they appear to believe that additional easing is appropriate, but they just can’t bring themselves to actually say so. Instead, they tend to fall back on simply justifying the current policy stance. Why? Possibly because they are good soldiers following Bernanke’s lead.